TRENTON, N.J. (Legal Newsline) - New Jersey Acting Attorney General John Hoffman announced a lawsuit on Wednesday against Standard & Poor's Financial Services LLC for allegedly misleading consumers about the independence and objectivity of its ratings services.
The lawsuit alleges Standard & Poor's damaged New Jersey consumers by claiming to be an independent source of analysis on complex investments when its ratings of the securities were driven by the company's own revenue goals. The company also allegedly engaged in favoritism toward investment banking clients that issued the securities and paid the company related fees.
The suit alleges Standard & Poor's and its parent firm McGraw Hill Financial Inc. engaged in three counts of New Jersey Consumer Fraud Act violations.
"The independence and objectivity of Standard and Poor's is of critical importance to New Jersey consumers, who placed their trust in the company's supposedly objective analysis," Hoffman said. "Our lawsuit alleges that this trust was misplaced, because Standard & Poor's was not providing independent investor information, but instead acting in its own business interests, and in the interests of favored clients whose fees provided the company with a significant revenue stream."
The lawsuit alleges Standard & Poor's issuer friendly approach to securities rating and analysis was steeped in a fear of losing market share to competitors. The competitive concerns allegedly undermined the integrity of the company's methodology for ratings and caused it to be lax in monitoring the performance of structured financial securities it rated.
In 2006, Standard & Poor's revenues rose approximately 15 percent to $12.7 billion, allegedly on the basis of increased fees it collected from structured finance security ratings.